Public Sector Economics EC408 Tutorial Questions for Revision
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1 Compiled by Charumbira M 2008 To be discussed in groups. Chapter 1 Review Questions Public Sector Economics EC408 Tutorial Questions for Revision 1. The analysis in Public Sector Economics is largely based on the social welfare function (SWF). Yet there is no consensus on how it should be specified. Discuss the implications of each of the alternative specifications. 2. Explain each of the following using relevant illustrations: -Walras law -Two Fundamental Welfare Theorems -Ricardian Equivalence 3. a) Using your knowledge of the welfare theorems, explain how satisfactorily distributional issues can be separated from the analysis of the efficient allocation of resources? b) Discuss Benthamite and Rawlsian views on social well-being and social justice. Making reference to these views, explain how different attitudes towards inequality affect the propositions on the Social Welfare Functions. 4. Identify one form of the SWF and explain why you think it is the most appropriate in modeling public sector decisions.
2 Chapter 2 Review Questions 1. A number of models of government behaviour have been developed to explain the size of public expenditures. Discuss any three of these models with regard to the factors affecting the relative growth of the public sector. 2. Describe the sources of public expenditure growth in the Niskanen framework. To what extent is the model applicable to the Zimbabwean context? What would you say are the limitations of the model? 3. Describe the various factors that you think could have contributed to the growth of government expenditure in Zimbabwe over the period In your answer make constant reference to the relevant theories. Chapter 3 Review Questions 1. Provide a formal analysis of the Oakland model of public goods provision and discuss its policy implications. 2. Describe the optimal provision of public goods in the Tiebout framework. Would you such a model is relevant to developing countries such as Zimbabwe? Chapter 4 Review Questions 1. Majority rule is not always the best system for identifying society s preferences. Use your knowledge of this and other voting models to analyse the validity of the above statement. 2. Explain the term logrolling. Describe how logrolling may present a greater opportunity for policies to pass. Do we have any evidence that he recent policies adopted in Zimbabwe have been inspired by logrolling? Chapter 5 Review Questions 1. Collen Bawn Cement Factory, owned by Pretoria Portland Cement (PPC), is generating a lot of dust during its production. The neighbouring communities are particularly worried about the potential health hazard if the situation is not solved. Discuss the various policy intervention strategies that government can use to solve the externality problem.
3 2. Explain how an optimal level of pollution might be achieved merely by clearly ascribing property rights. Using appropriate illustrations, and clearly outlining the underlying assumptions, provide a valid analysis that provides evidence that the desirable outcome is independent of who gets the property rights. Chapter 6 Review Questions 1. In the 1990s Zimbabwe embarked on the Economic Structural Adjustment Programme (ESAP). Evaluate the effectiveness of the programme in the particular context of public sector reform. 2. The IMF and World Bank have often proposed that developing countries should as part of their restructuring institute expenditure reduction measures that are consistent with the objective of reducing the budget deficit. What would you say are the immediate and longterm social effects of such policies?
4 Chapter 7 Review Questions 1. What are the major considerations involved in the formulation of a commodity tax policy? 2. The worst mistakes in history are made by political leaders who, instead of realizing that revenues could be gained by lowering tax rates, become alarmed at the fall in revenues that result when citizens seek to escape high tax rates. (Laffer; 1972). Explain the above statement in relation to the revenue productivity of a tax system. 3. There are always two rates of taxation that will produce the same revenue, one at a higher level of national production and one at a lower level, the only exception being when you are at exactly the point where the tax rate is optimal, Laffer (1972). Explain the Laffer curve and in particular why at the optimum point revenue would fall if you raise or lower the tax rate. 4. Derive the Ramsey rule of optimal commodity taxation and briefly explain its policy implications. 5. Explain the determination of optimal income tax levels in the Atkinson and Feldstein Model. Does the Zimbabwean economy provide evidence that the policy-makers get inspiration from such models? 6. Explain the concept of buoyancy of a tax system. Chapter 8 Review Questions 1. Explain clearly the difference between tax evasion and tax avoidance. 2. Illustrate using algebraic or graphical analysis how the economic agent arrives at a decision of whether or not to evade tax. 3. Discuss the various factors that could have contributed to tax evasion in Zimbabwe in recent years.
5 Chapter 10 Review Questions 1. Debt sustainability has been a topic issue in recent years, with some lobby groups calling for debt cancellation for the Highly-Indebted Poor Countries. Provide a formal framework for analyzing the capacity of a country to honour its debt. 2. What advice would you give to poor countries on how they can manage their existing debt, whilst at the same time minimizing the adverse effects on the citizens?
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